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Will a MARAD Waiver Allow Charters on a Foreign-Built Boat?

Posted: June 19, 2013 | By: David Weil, Esq.

I recently purchased a foreign-built catamaran, and I intend use it in a small charter business. I have already obtained a “MARAD Waiver” for 12 passengers, so I am able to charter this vessel even though it was not built in the United States. However, I cannot put the boat into charter service until I refinance with a bank that will sign off on a Coastwise Trade Endorsement on my documentation. In the interim, I would like to use the boat for bareboat charters, but I understand there may be a problem with my running the boat as captain. Am I automatically prohibited from running the boat, even though I may be the only properly licensed captain in the area?

Our reader has offered a lot of information, and we need to clear up some confusion with some of that information before answering his specific question.

He indicated that the boat that he plans to use in his charter service was not built in the United States, but that he has obtained a “MARAD Waiver” for the boat. He is correct in noting that a foreign-built vessel may not legally carry passengers for hire in this country unless the owner obtains a waiver of the restriction from the United States Maritime Administration (MARAD). Information regarding a waiver is available on MARAD’s website: marad.dot.gov Follow the links to the Small Vessel Waiver Program.

The restrictions regarding foreign-built vessels are intended to protect domestic shipping industries, and the U.S. is one of many countries that have enacted these types of laws. The waiver program recognizes that the restrictions are more appropriate for big ships. because small passenger vessels are not a big threat to domestic shipping.

Vessel owners may apply for the waiver by following the directions on the MARAD website. Once the waiver is granted, it stays with the vessel, even after it is sold.

Our reader is correct that the waiver will allow for a vessel to carry up to 12 passengers for hire, but only if all other legal requirements are met.

The phrase “passengers for hire” refers to passengers who are paying compensation to the vessel owner for their transportation. Carriage of passengers for hire requires a vessel owner to obtain a “Coastwise Trade Endorsement” on the vessel’s Certificate of Documentation. Most foreign vessels are ineligible for this endorsement, but the MARAD waiver specifically allows for this.

Further, most vessels that carry passengers for hire in the U.S. must comply with a strict set of Coast Guard regulations. They must pass a rigorous Coast Guard inspection and they must be issued a Certificate of Inspection from the Coast Guard.

An exception to the Coast Guard inspection process is allowed for vessels that carry six or fewer passengers for hire (often referred to as “six-pack” charters). The limit is increased to 12 passengers if the boat measures more than 100 gross tons (this regulation is set forth in 46 C.F.R. sec. 2.01-7).

Referring back to our reader’s case, the MARAD waiver has no effect on the Coast Guard inspection regulations. The vessel must be inspected by the Coast Guard if it carries more than six passengers for hire, or more than 12 passengers if the vessel is over 100 gross tons.

Our reader said nothing about the size of his catamaran or Coast Guard inspection, but it is most likely an uninspected vessel under 100 gross tons -- in which case, he will be limited to six passengers, even with the MARAD waiver.

Our reader also discussed bareboat charters and he questioned whether he would be allowed to skipper the boat, even if he were the only licensed and qualified captain in the area. The short answer is “no.”

A bareboat charter is a lease arrangement where the charterer takes on all of the rights and obligations of ownership without actually transferring title, and the owner is generally protected from liability against third parties.

Bareboat charters are common in the world of commercial shipping, where complex tax and international vessel registration laws may encourage a lender to take ownership of a ship rather than to simply record a mortgage. Like most principles of maritime law, bareboat charters were developed to manage the safety and commerce of ships at sea, but they are equally applicable to recreational boats.

Bareboat charters are attractive to charter boat operators because the charterer is treated as an owner. Since an owner may bring as many guests and friends aboard as the vessel may safely accommodate, the operation is not subject to Coast Guard inspection.

Unfortunately, to create a bareboat charter, the owner of the vessel must completely and exclusively relinquish possession, operation, maintenance, command and navigation of the boat to the charterer. The most common mistake made by people who seek to use this structure as a loophole around Coast Guard inspection is that they require the charterer to use a specific captain and crew, or to select from a very short list of captains and crew. A true bareboat charter arrangement does not allow the owner to designate a captain and crew.

Chartering is a complex area of maritime law, particularly when we are looking at boats or charter operations that try to skirt the Coast Guard’s passengers-for-hire regulations. Contact an experienced maritime attorney to discuss the facts and structure of your operation, before you get too far along in the process.